Will Mortgage Rates Drop After September’s Fed Meeting? Expert Predictions

Recent developments in the housing market are stirring optimism, particularly regarding interest rates. The Federal Reserve is widely anticipated to announce a reduction in interest rates during its upcoming meeting on September 17 and 18. Currently, the federal funds rate is set between 5.25% and 5.50%, with many expecting a decrease of 25 basis points.

Inflation, while showing a slight increase of 0.2% in July on a seasonally adjusted annual basis, still remains below 3%. This is encouraging news for potential homebuyers. Combined with other economic indicators, these inflation statistics have led experts to believe the Fed is likely to lower rates at its upcoming meeting.

However, a question lingers: Will mortgage interest rates follow suit and drop? The answer appears more complex than a simple yes or no. Here’s a closer look at expert predictions regarding the implications for mortgage rates if the Fed moves forward with its anticipated cut.

Mortgage rates, while indirectly influenced by the Fed’s decisions, are not directly set by the Federal Reserve. Mortgage lenders can adjust their rates at any time, independent of the Fed’s actions. Consequently, many experts assert that any potential reduction in interest rates has already been anticipated by lenders and factored into current mortgage rates.

Dr. Selma Hepp, chief economist at CoreLogic, explains that mortgage rate movements are often preemptive in nature. “Much of the recent decline in mortgage rates reflects the expected cut in September,” she notes. “However, while a rate cut seems certain, the interplay between inflation and employment data will guide how frequently and significantly the Fed may lower rates throughout the year.”

Shmuel Shayowitz, president and chief lending officer at Approved Funding Corp, echoes this sentiment, emphasizing that the market has already accounted for the Fed’s anticipated rate change. “There is 100% certainty for at least a 25 basis point cut, which is already reflected in the current mortgage rates,” he remarks. “We don’t foresee further improvement in mortgage rates ahead of the September meeting unless outlooks for rates become more aggressive.”

As for the outlook on mortgage rates, they may linger in the mid-6% range, contingent on various economic factors including job market conditions. “Should the job market continue to soften, or if the cooling intensifies, the Fed might opt for more substantial rate cuts than the two currently anticipated,” Hepp notes. “In such a scenario, mortgage rates could decrease more significantly. Still, general consensus points towards mortgage rates staying within the low to mid-6% range as the year closes.”

This implies that for those evaluating their options, purchasing a home now might be advantageous if they are financially prepared. Although it is tempting to wait for lower rates, an easing job market could shift dynamics, making future rates unpredictable.

Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation, shares an outlook for the coming year. “I believe we have seen the highest mortgage rates for 2024, and they should slowly decline. I don’t expect much of a decrease in rates next year,” he states. “Positive economic indicators throughout 2024 could lead to more stable mortgage rates, evidenced by cooling inflation, a slower job market, and lower costs in areas such as rent and consumer goods.”

For many potential homebuyers, the dilemma remains whether to act now or hold out for improving rates. While many are opting to pause their buying decisions, entering the market sooner may bestow certain advantages. Less competition could enhance the chances of securing a desirable property at a lower price.

Delaying home purchases for a significant drop in mortgage rates could lead to entering a market where competition intensifies and home prices increase. Therefore, buying now may provide an opportunity to purchase a property while it remains affordable—at its lowest point since April 2023—amid reduced competition.

Ultimately, deciding when to buy a home is a personal choice that hinges on individual financial circumstances. It’s crucial to consider all aspects of homeownership, including the complexities of mortgage payments, to ensure a comfortable financial situation.